Estate taxes surprise many families across the country
Washington’s lack of a state income tax often leads residents to believe the government stays out of their finances after death, but the state maintains one of the nation’s most aggressive estate taxes.
How the tax is calculated
When the state evaluates an estate, it looks beyond cash balances. The valuation includes the primary residence—even if the mortgage is paid off—retirement accounts such as IRAs and 401(k)s, brokerage holdings, and the death benefit from life‑insurance policies. A couple owning a $650,000 home in Spokane, with $2.5 million spread across retirement and brokerage accounts, would already surpass the $3 million exemption threshold, despite never feeling “rich.”
Retirement accounts are hit especially hard because they count toward the estate tax and then trigger federal income tax when heirs withdraw the funds. Washington also does not allow the portability of exemption between spouses, unlike federal law. As a result, the first spouse’s unused exemption can vanish, leaving the second spouse with only a single exemption to protect the remaining assets.
Recent changes to the exemption
Lawmakers reduced the top estate tax rate from 35 % to 20 %, a relief for larger estates. At the same time, they reset the exemption to $3 million and froze it, removing the annual inflation adjustment. For deaths occurring before mid‑2026, the exemption was $3,076,000, but for those after July 1, it reverted to a flat $3 million. Because the exemption no longer rises with inflation, assets that once sat comfortably below the limit will inch closer each year.
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The freeze creates a moving target. A family whose home and investment accounts stay the same will find the $3 million line approaching as property values and account balances increase with market trends. This shift can catch families off guard, especially when they assume the exemption will keep pace with cost‑of‑living changes.
Estate taxes affect many families.
From a practical standpoint, the changes mean that many middle‑class households need to start thinking about estate planning sooner rather than later. If a family’s combined assets are likely to exceed $3 million, a meeting with a fiduciary adviser and an estate attorney becomes essential while there is still room to act.
Planning options to mitigate the tax
Several strategies can help preserve wealth across generations. A credit‑shelter trust, often built into a will or living trust, allows married couples to retain both exemptions despite Washington’s lack of portability. An irrevocable life‑insurance trust can remove the death benefit from the taxable estate altogether.
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More straightforward approaches that clients frequently use include lifetime gifting and charitable giving. By transferring assets while still alive, individuals can see their heirs benefit directly and reduce the estate’s size. For retirees aged 70½ or older, qualified charitable distributions from an IRA can be made tax‑free, lowering both current taxable income and the balance that heirs will later inherit.
These methods require foresight; they cannot be implemented after a death has occurred. The common thread is that proactive planning can keep a family’s legacy intact, even as the state’s threshold remains static.
In everyday terms, the freeze means the state is patiently waiting for estates to grow into the tax bracket. Families that ignore the looming limit may find themselves facing a bill they never anticipated, simply because the exemption stopped climbing while their assets kept rising.
